Financial News

Banker Bonus Cap Is 'Deluded', Says Boris

The Mayor of London has launched a stinging attack on European Union officials after they agreed a provisional deal to cap bankers' bonuses.

The plan would see the maximum payout set at a year's salary but that could be increased to two years' salary with shareholder approval.

The Treasury opposed the idea because it feared that limits could cost jobs in the City and prompt firms to leave for more favourable shores.

Boris Johnson said: "This is possibly the most deluded measure to come from Europe since Diocletian tried to fix the price of groceries across the Roman Empire."

He warned that it would play into the hands of the City of London's overseas rivals, while undermining support for the EU in Britain.

"People will wonder why we stay in the EU if it persists in such transparently self-defeating policies," he added.

Speaking in Latvia, David Cameron said that any regulation must be flexible enough to allow UK-based banks to compete and succeed.

"We need to make sure that regulation put in place in Brussels is flexible enough to allow those banks to continue competing and succeeding while being based in the UK."

The measures are part of a sweeping overhaul of EU banking rules, which are designed to ensure that banks in the future have enough capital to withstand financial shocks.

Wednesday night's agreement, reached during an eight-hour session between EU lawmakers, the EU Commission and representatives of the bloc's 27 governments in Brussels, ensures the package can take effect next year.

Currently there is no legal pay limit on top bankers and traders, who can earn performance bonuses many times their base salaries.

But public outrage has grown across Europe over large payments to executives of banks that received huge state bailouts during the financial crisis.

Supporters of the bonus cap say the payments encouraged bankers to take massive risks at the expense of the long-term future of their businesses, which helped to destabilise the financial system.

Othmar Karas, the European Parliament's chief negotiator, said: "For the first time in the history of EU financial market regulation, we will cap bankers' bonuses.

"The essence is that from 2014, European banks will have to set aside more money to be more stable and concentrate on their core business, namely financing the real economy, that of small and medium-sized enterprises and jobs."

Final approval by parliament and government leaders of the package is expected to be a formality.

Britain had tried to rally other EU governments behind its position but failed to garner enough support.